Non-performing loans (NPLs) disbursed by the banking industry surged by more than Rs. 70 billion in 2023, the latest data by the State Bank of Pakistan (SBP) showed.

In 2023, bad loans by the sector surged to Rs. 1.009 trillion, up by Rs. 71.3 billion compared to Rs. 938 billion in the same period last year.

Commercial banks dominated the space with most bad loans released to defaulters during the previous calendar year. Data showed NPLs by commercial banks increased by 8 percent to Rs. 956 billion compared to Rs. 883 billion in 2022.

Local private banks came in second with bad loans of Rs. 634 billion, up 16.5 percent compared to Rs. 545 billion in the same period last year. Meanwhile, public sector banks disbursed Rs. 320 billion in bad loans, which have decreased slightly from Rs. 336 billion reported in 2022.

Foreign banking operations in Pakistan played it safe in 2023, having disbursed just Rs. 633 million in bad loans, down by 66 percent compared to Rs. 1.86 billion in the previous year.

Developm
ent Finance Institutions (DFIs) attributed Rs. 15 billion to bad loans in 2023, Rs. 510 million more than in 2022.

SBP data showed cash recovery against non-performing loans clocked in at Rs. 33 billion for the quarter that ended on December 31, 2023, roughly the same compared to recoveries in the same period last year.

In light of this, Pakistan’s hopes for a rapid economic recovery remain futile as banks struggle with bad debt. While controllable, this surge is limiting their capacity to extend loans and support economic growth at current lending rates.

SBP’s steep interest rate, which has remained at 22 percent since June 2023, worsens the problem as it undermines borrowers’ ability to repay loans. As a result, loan repayment concerns loom large.

Source: Pro Pakistani